Main points of investment

Items:

On October 31, the company released its third quarter 2016 report. In the first three quarters, the company achieved a total revenue of 419 million yuan, an increase of 18.35% over the same period last year, and a net profit of 17.83 million yuan, an increase of 177.84% over the same period last year. The corresponding basic EPS and diluted EPS were 0.0630 yuan and 0.0622 yuan respectively. At the same time, the company released its annual performance forecast for 2016, predicting a net profit range of 18 million yuan to 25 million yuan, turning losses into profits.

Peace viewpoint:

Revenue growth helps to improve performance and turn losses into profits: in the third quarterly report, the company made retroactive adjustments to the previously disclosed financial statements for the transfer of shares in its subsidiary Lehui World, mainly transferring the non-operating income of about 222 million yuan generated by the inter-temporal recognition of equity transfers to the 2015 statements. According to the retroactive adjusted data, from the beginning of the year to the end of the reporting period, the company achieved a total revenue of 419 million yuan, an increase of 18.35% over the same period last year. This is mainly due to the fact that the focus of the peripheral business has shifted to competitive products and robot business orders have begun to be delivered and settled, and revenue from keyboard, mouse and robot business has increased. Benefiting from the increase in revenue, the sharp reduction in asset impairment losses, and the decline in sales and management expenses, although the comprehensive gross profit margin dropped to 26.91% from 33.45% in the same period last year, the company still achieved a net profit of 17.83 million yuan in the first three quarters, significantly improved from a loss of 22.91 million yuan in the same period last year. In the quarter of the reporting period, the company's revenue in the third quarter was 163 million yuan, an increase of 31.71 percent over the same period last year, higher than that in the first half of the year. Although the net profit was only 4.28 million yuan, it was significantly better than the loss of 17.47 million yuan in the same quarter last year. Driven by a turnaround in the peripheral business, rising revenue from the robotics business and the launch of new drones, the company is expected to continue to improve and make a profit for the full year and enter the growth channel in the next two years.

Set up a robot business subsidiary, focus on the integration of robot business resources: on September 29, the company's newly established subsidiary Shenzhen Leibo Robot Intelligent equipment Co., Ltd. completed the industrial and commercial registration procedures and obtained the "business license". At present, China is the country with the fastest growing demand for industrial robots and has become the world's largest market since 2014. The company sets up a robot business subsidiary with its own capital of 50 million yuan, and establishes a platform for integrating robot upstream and downstream business, which aims to expand robot business integration ability and market expansion ability, promote business transformation and upgrading, and improve the output level of intelligent manufacturing solutions. The establishment of the subsidiary has little impact on the financial situation and operating results of the company in the short term, but it will promote the growth of the existing robot business and have a positive impact on the future development of the company.

The transformation of the peripheral business is smooth, and the complete turnaround has been confirmed: based on the rapid development of e-sports in recent years and the gross profit margin of high-end e-sports peripheral products is significantly higher than that of ordinary peripheral products, while ensuring the stable development of wireless products, the company focuses on intervening in the field of e-sports peripherals and vigorously building V-series product lines. During the reporting period, thanks to the advantages of offline channels and diversified marketing policies, the development of new customer groups was progressing smoothly, and the revenue growth of competitive peripheral products was obvious, which prompted the company's peripheral business to completely turn losses into profits. this was further confirmed by the financial performance in the third quarter.

The business of drones and robots is advancing smoothly, and the imagination is broad: the partner of the company's UAV business is zero degree control, which is on a par with DJI. Since launching this business last year, XIRO generation drones have been sold on a large scale, and the products have been stationed in more than 20 countries and regions at home and abroad. In addition, the new products jointly launched by the company and Tencent, empty Shadow YING and XPLOERMINI, have entered the limited internal testing phase and the official external launch stage in late October, respectively, and are expected to achieve hot sales. In terms of robot business, as the lead undertaking unit of the first batch of national intelligent manufacturing demonstration sites and national support plan project "Fast and precise automatic assembly line for electronic products industry", the company's professional advantage enterprises have established a close cooperative relationship, the robot business has covered more than 40 customers in more than 20 industries, and orders received in the early stage are being implemented one after another. Among them, the contract for Manufacturing and installation of the second Generation Intelligent production Line Project signed in November 2015 and the contract for the second Generation Intelligent production Line Test Robot Integrated system totaled nearly 62 million yuan, and the total order volume is expected to reach 200 million yuan this year.

Profit forecast and investment advice: according to the progress of the company's operation and the retroactive adjustment of the company's previously disclosed financial statements, we adjusted our profit forecast from 2016 to 2018 accordingly and lowered the profit forecast for 16-18 years. The net profit in 2016 is still reduced from 329 million yuan to 24.31 million yuan, the net profit in 2017 is still reduced to 110 million yuan in 220 million, and the net profit in 2018 is still reduced to 183 million yuan. The corresponding EPS of each year is 0.09,0.39 and 0.65 yuan respectively. On the whole, we are optimistic about the company's development prospects, especially the growth space of the drone business and industrial robot business. We believe that the company has made a complete turnaround this year, and the company's performance is expected to achieve continuous rapid growth next year and the year after next. Maintain the "recommendation" rating.

Risk hint: e-sports PC peripheral equipment market expansion is not as expected; consumer UAV market competition intensifies.